A company's repurchase of its own shares from the open market, reducing the share count and increasing each remaining shareholder's proportional ownership.
Deeper Explanation
Buffett considers share buybacks the highest-return use of capital when a stock trades below intrinsic value — a management team buying their own stock at a discount creates immediate value for remaining shareholders without requiring any additional business activity. The opposite is equally true: buying back stock above intrinsic value is capital destruction that transfers wealth from long-term holders to selling shareholders. The discipline of buying back only at below-intrinsic-value prices is the standard Buffett applies and teaches. Buybacks are preferable to dividends in most cases because shareholders can choose when to realise the value (avoiding forced annual taxation on dividends) and because buybacks at below-intrinsic-value prices create compounding wealth for patient investors.
Continue Learning
Go deeper into the Value school — frameworks, case studies, and decision systems.